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Generational Dynamics Web Log for 20-Jul-2010
20-Jul-10 News -- Hungary and Ireland face new financial problems

Web Log - July, 2010

20-Jul-10 News -- Hungary and Ireland face new financial problems

Stress tests for Europe's banks to be released on Friday

Hungary rebuffs IMF on austerity and will no longer receive aid

Hungary has split with the International Monetary Fund by refusing to honor the austerity commitments that it made in 2008 in return for a $25 billion bailout package. Now that the bailout money is running out, Hungary's Prime Minister Victor Orbán told an IMF representative over the weekend that he will not approve further austerity measures demanded by the IMF. As a result, the IMF walked out of the meeting, and announced that no more aid will be provided to Hungary, according to Bloomberg.

"The austerity policy of the last 4-5 years, introduced at the cost of growth and competitiveness cannot be continued," said Hungary's Economy Minister Gyorgy Matolcsy, according to Budapest Business Journal.

Without further IMF funding, Hungary will not be able to pay its bills unless it finds another source of money, and that source will be an "extraordinary financial sector tax," according to the article.

Hungary's financial situation is not as bad as Greece's, but the IMF's firm response to Hungary's rebellion will send a strong signal to Greece, according to Ambrose Evans-Pritchard, writing in the Telegraph. The Greek government is facing enormous political pressure to ease its own austerity program, and the governing party may splinter over the issue.

Whether Hungary can survive without IMF money is highly doubtful, according to the article. Tim Ash of RBS is quoted as saying that Hungary is playing a "dangerous game," and that, "If there is another bout of global risk aversion, Hungary is the first target. It has $40bn of reserves, or five months import cover, but in the end it probably can't survive without IMF money,"

What I find most interesting about this story today is that many people, including some analysts, are applauding Hungary's government for standing up to the mean ol' IMF.

Reuters blogger Felix Salmon says that, "all of this is good news, I think: global markets are less prone to panic, and even Hungarian markets seem to have made peace with the idea that there might not be an IMF backstop for the time being. Maybe the 'new normal' is, slowly, becoming normal."

The Hungarian Social Forum welcomed the Hungarian government's actions regarding the IMF, according to the Budapest Business Journal:

"The government proved to be responsible towards Hungarian citizens living from their work by not giving in to the European Union's demands on introducing further austerity measures in exchange for receiving the remaining part of the stand-by loan. ...

International creditors should acknowledge that Hungary’s stability is not only a budgetary issue but also a social one, which also affects the international financial systems and the stability of Europe as well."

At times like this, I'm always reminded of the story of the man who jumps out the window on the 50th floor of a skyscraper. As he's going by the 20th floor, someone yells out the window, "How are you doing?" He shouts back, "Everything's great so far!"

Moody's downgrades Ireland's debt

Moody's Investor Service lowered its rating on Irish government bonds on Monday. The Irish Times quotes Moody's Ireland analysts as saying, that the "downgrade [was] primarily driven by the Irish Government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability."

This downgrade is a bitter disappointment to the Irish. They've taken very aggressive austerity measures -- raised taxes and slashed public sector pay -- in the wake of a destructive real estate bubble, according to Fortune.

Unemployment in Ireland has reached 13%, compared with 10% overall in the European Union. Interest rates on Irish bonds have been going up, forcing the government to pay more to bond investors.

According to London's Daily Mail, the situations in Ireland and Hungary have alarmed investors at the prospect of Europe plunging back into recession.

This would be particularly painful for Britain, which is counting on a business-led export boom to bring growth back to Britain's economy.

From the point of view of Generational Dynamics, this is wishful thinking, as the financial crisis has much farther to go.

European Union will release results of stress tests on Friday

EU financial analysts are actually in quite a tizzy this week, holding their breath to see what will happen on Friday afternoon, when the results of stress tests for 91 European banks are released.

The stress test results could have major effects on the stock markets. If the banks do well, then stocks may rise; but if they do too well, then investors will assume that the tests weren't tough enough, according to the AP. On the other hand, if the banks do poorly, then stocks may fall sharply.

Additional links

Concern is growing for the health of Egyptian President Hosni Mubarak, who is thought to be terminally ill, dying from cancer. Mubarak became president after Anwar Sadat was assassinated by terrorists in 1981, and has been a close American ally. Egypt is in a generational Crisis era, and a succession crisis could destabilize the country. Washington Times

Xinhua is claiming that Afghanistan's Taliban insurgents are training monkeys to use AK-47 rifles and other weapons to attack American troops, and is attributing this story to an unnamed British media agency. Xinhua

NATO Secretary General Anders Fogh Rasmussen said on Monday that Afghanistan will need Nato troops for many years to come. "After nine years of international involvement it has become painfully clear that the price we have to pay is much higher than expected -- especially regarding the international and Afghan soldiers killed. It cannot be disputed that the international community underestimated the size of this challenge in the beginning." Spiegel

Leaders of former Soviet republics Belarus and Georgia are teaming up against the Kremlin. Moscow Times

Somalia's al-Shabaab terrorists were following a cynical but well-known strategy when they bombed civilians in Uganda last week. The strategy is to provoke more foreign intervention, especially from the United States, and then portray itself as fighting a nationalist struggle. ISN Security Watch

Last week's drug cartel car bomb that killed two officers in Ciudad Juarez indicates that the 'Colombianization' of Mexico nearly complete. CS Monitor

Now that the United Nations has failed to blame North Korea for the torpedoed sinking of the South Korean warship Cheonan, the South Koreans are hoping to get a condemnation of North Korea this week at a meeting of the Association of Southeast Asian Nations (ASEAN). Tensions are still very high on the Korean peninsula, and many people believe that South Korea will make some revenge military strike. AFP

Syria's Education Minister has issued a decree banning women from wearing full Islamic veil on university campuses. The decision was taken "at the request of a number of parents" who do not want their children to be educated in an "environment of extremism." VOA

Many law firms are cutting back on their summer internship programs. LA Times

According to the IRS, the IRS will need a great deal more funding to implement "the most extensive social benefit program the IRS has been asked to implement in recent history." The IRS will need many new employees to conduct audits of citizens to determine who has the health insurance "as required by law," and collecting penalties from Americans who don't. WSJ (Access).

Financially troubled towns are ripping up street pavement and turning paved roads into gravel roads, in order to save money. WSJ (Access).

Big-breasted women are more intelligent than small-breasted women -- by 10 IQ points. Beyond Jane (Update: Surprise! This apparently turns out to be a hoax.)

(Comments: For reader comments, questions and discussion, see the 20-Jul-10 News -- Hungary and Ireland face new financial problems thread of the Generational Dynamics forum. Comments may be posted anonymously.) (20-Jul-2010) Permanent Link
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